Author: Oliver Knight, Omkar Godbole Source: coindesk Translation: Shan Oba, Golden Finance
After 10 years of failed applications, the U.S. Securities and Exchange Commission (SEC) is about to approve the first spot Bitcoin ETF in the United States.
If the SEC approves a spot Bitcoin ETF, what will happen to the cryptocurrency market, people's Opinions vary.
Some analysts say predictions of an influx of investment are overdone.
This week marks the first day since the first block (the genesis block) on the Bitcoin blockchain was mined. 15 years. For more than a decade, industry stalwarts have been pleading with the U.S. Securities and Exchange Commission (SEC) to approve a U.S. spot Bitcoin exchange-traded fund (ETF), a vehicle expected to open the floodgates to a wave of institutional investment.
So far, the SEC has rejected all applications, but that may be about to change. Analysts predict that at least one of the more than a dozen proposals now could be approved as early as Friday.
There are mixed views on what will happen to the crypto market if approved.
Gabor Gurbacs, director of digital asset strategy at VanEck, said that although spot ETFs will create "trillions of dollars in value" in the long run, people tend to "overestimate "Without the initial impact of the U.S. Bitcoin ETF," initial flows will only equal "a few hundred million (mostly recycled) dollars."
Other analysts said, Approval would require ETF issuers to purchase tens of billions of dollars of Bitcoin to meet institutional demand, resulting in a fundamental shift in supply and demand dynamics. Some analysts even predicted a "supply shock" after foreign exchange balances fell to a five-year low in October. The lack of Bitcoin on exchanges suggests holders are storing it in personal wallets, suggesting they are less willing to sell.
SPDR Gold Equity ETF (GLD) is the first U.S. physical gold ETF, launched in 2004, and its analysis of inflows provides rich information. GLD accumulated $1.9 billion (adjusted for inflation) in the first four weeks, growing to $4.8 billion by the end of the first year, according to cryptocurrency exchange Coinbase. The ETF currently has total assets of $57.37 billion.
Going even further back, Invesco's QQQ, an ETF that tracks the Nasdaq 100 Index of some of the world's most innovative companies, was Launched in March 1999, a year before the dot-com bubble burst. In the first 30 days, the fund saw $847 million in inflows ($1.6 billion in today's dollars).
Back to business, the ProShares Bitcoin Strategy ETF (BITO) based on Bitcoin futures has accumulated approximately $1.5 billion within 30 days of its launch in October 2021. On an inflation-adjusted basis, sentiment across the crypto asset class was very positive at the time. The fund held total assets of $1.65 billion as of Thursday.
BITO invests in regulated CME futures rather than actual cryptocurrencies and is therefore exposed to the risk of rollover costs. Nonetheless, the fund has closely tracked Bitcoin's spot price since its inception and is a viable option for those looking to gain exposure to Bitcoin without the ownership and storage hassles.
Another consideration is the global economy, with global risk-free interest rates rising and household financial conditions deteriorating. This macroeconomic environment contrasts sharply with the strong growth in the mainstream market for cash ETFs.
How will the market react?
Bitcoin has gained 61% since early October, largely on expectations that the SEC will approve one or more spot ETF applications. This prompted several analysts to predict that news of the sell-off would trigger a pullback once the ETF came online. Once the news is confirmed, prices will fall as investors who benefited from the rise sell to lock in profits, they said.
Consider the debut of CME Bitcoin futures in December 2017, Coinbase’s listing on Nasdaq in mid-April 2021, and the inclusion of BITO The debut of multiple futures ETFs. In those cases, Bitcoin kept rising but crashed within weeks of the event.
For example, Bitcoin surged 15% in the three days before the SEC approved the first futures ETFs. A month later, it hit an all-time high of $69,000 before falling into a bear market that lasted more than a year.
CryptoQuant said last week that Bitcoin could fall to $32,000 because the amount of unrealized profits in the market is historically at levels before so-called price corrections. In the cryptocurrency market, a price correction is typically considered a 10% drop. Bitcoin rose 160% last year and is up nearly 4% this month.
CryptoQuant is not the only company predicting a decline. Singapore-based cryptocurrency trading firm QCP Capital said on Telegram last month that initial demand for the ETF may be lower than expected, setting the stage for a classic sell-off news scenario.
Investors worried about a repeat of what happened after the launch of CME futures and ProShares BITO may want to note that both came after markets rallied hundreds in 12 months %. It seems that the time for a callback is ripe.
This time, the launch of the spot ETF is expected to come ahead of the Bitcoin blockchain's four-year mining reward halving, which previously marked The beginning of a rapid price increase. The move comes after prices briefly dipped to $41,000 this week, with the sell-off unwinding $400 million in leveraged bets and wiping out $2 billion in futures open interest.
Recovery of funds or new inflows of funds?
The difference between earlier sell-off news events and this one is that spot Bitcoin ETFs involve actual Bitcoin, thereby removing supply from the market. The CME's launch of futures sent prices lower as it allowed traders to synthetically short cryptocurrencies following a ferocious bull run led by the unsustainable ICO frenzy in 2017.
Another aspect of spot Bitcoin ETFs is that, unlike ETF derivatives or Bitcoin proxy stocks like Coinbase (COIN) or MicroStrategy, institutional investors such as Typical conservative pension funds and insurance funds) will gain a way to increase their exposure to native Bitcoin. MSTR).
There are currently 35 gold ETFs in the United States, with total assets under management reaching US$118.7 billion. A recent report from financial services firm NYDIG compared them to potential Bitcoin ETFs.
The report states: “Given that Bitcoin is approximately 3.6 times more volatile than gold, investors require approximately 3.6 times fewer Bitcoins than gold in U.S. dollar terms. Bitcoins can achieve the same level of risk exposure.” “This still represents an additional demand for Bitcoin ETFs of close to $30 billion.”
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